U.S. Banks Lack Liquidity to Withstand Crisis, Study Says

U.S. banks representing more than
half the industry’s assets need an additional $840 billion in
cash on hand to cover short-term obligations if financial
markets seize up again, according to a study.

The 11 financial firms surveyed, which have about $9.2
trillion in combined assets, need the funds in cash, Treasury
bonds or other liquid assets to cover 30 days of debt costs and
other expenses under international capital rules, according to a
report released today by the New York-based Clearing House,
which represents 18 of the largest lenders.

The so-called liquidity coverage ratio, a buffer of banks’
liquid assets regulators require in case markets freeze,
improved from 59 percent in the fourth quarter of 2010 to 81
percent in the second quarter of this year, the Clearing House
said. Three of 11 companies surveyed have a coverage ratio of
100 percent or more while eight have shortfalls.

“While this trend may, in part, reflect prudent liquidity
management in view of uncertainty surrounding liquidity
requirements, much of the LCR improvement is a result of strong
deposit growth and reduced loan growth,” according to the
report.